The instant petition(s) were filed invoking the jurisdiction of the High Court under Section 482 of the Code of Criminal Procedure 1973 (Cr.P.C.)

In all the petitions, praying was for setting aside the order of the Additional Chief Metropolitan Magistrate (ACMM) whereby he took cognizance and issued process and quashing of the proceedings arising out of the criminal complaint filed by the Assessing Officer (AO) alleging offence under Section 276 CC of Income Tax Act, 1961 (Act) read with Section 278 B of the Act.

The allegations against the petitioners, namely the accused company, its managing director and two other directors were committing will full breach of the requirements of Section 139(1) of the Act by failing to file return of the income of company in respect of the relevant assessment year by the stipulated date, the default vis-a-vis failure to comply with the notice under Section 142(1) of the Act.

The Petitioners raised the contention that prior sanction for the prosecution had been granted under Section 279(1) by the Commissioner of Income Tax (CIT) whereas the said authority (CIT) had earlier issued the show cause notice calling upon the company accused to respond as to why the prosecution for willful failure to file return of income be not launched.

The case of the petitioner was that the question as to whether or not to initiate prosecution is within the domain of the Assessing Officer (AO), who had passed the assessment order. It was submitted thatthe sanction for prosecution suffered from the vice of non-application of mind because the facts of subsequent filing of return followed by scrutiny assessment had not been taken note of nor the views of the assessing authority for expediency of criminal prosecution ascertained.

It was the submission of the petitioners that since the criminal complaint was filed on sanction for prosecution issued by the CIT, it is a case of the prosecutor being the judge of his own cause.

The Hon’ble High Court observed that clearly the proviso to Section 279(1) of the Act provides that the prosecution can be initiated at the instance of the authorities superior to the assessing authority, they including officer of the level of CIT or even those above in hierarchy who are permitted to issue instructions or directions for institution of proceedings under Section 279 (1) which provision also governs the process relating to offence under Section 276 CC. Thus, there was no impropriety on the part of CIT in granting sanction for prosecution.

The Hon’ble High Court further observed that the accusations against the Petitioners in the criminal complaint related to the offence under Section 276CC which is an offence that deals with “failure to furnish returns of income”. There was no denial that there was indeed a failure to furnish return of income within the time stipulated under Section 139 (1) or in response to the notice under Section 142 (1).

The Hon’ble High Court opined that whether or not there was justification for such default is a matter of defence which may be agitated during the trial. The assessment proceedings are independent of this matter and they would not come in the way of criminal prosecution

The Petitioner argued that the AO had not imposed any penalty under Section 271F which was mandatory in the event of it being concluded that there was a wilful failure to furnish return of income. It was argued that, in this view, it had to be inferred that in the opinion of the assessing authority there was no willful default and, thus, the requisite mens rea required for Section 276 CC was amiss.

The Hon’ble High Court observed that after the amendment made by the Finance Act, 2002, under section 271F, whether or not the penalty as envisaged in Section 271 F is to be imposed, is a matter to be determined by the Assessing Officer within the meaning of the section. He may direct such penalty to be paid and conversely, it would be correct to say, he may choose not to so direct for such penalty to be paid. At any rate, the omission on the part of the assessing officer to impose such penalty by itself does not mean that, in his opinion, the default was not willful. To determine whether the default was willful or otherwise, the explanation offered may be in response to the show cause notice, will have to be seen and construed.

In the instant case, apart from the company, the managing director and the two directors of the company were prosecuted u/s 278.

The Petitioner argued that under section 140(C), the obligation to verify and submit the ITR on behalf of the company has been placed by the legislature on the managing director of the company and, consequently, it is inappropriate and unfair to rope in the directors of the company.

The Hon’ble High Court observed that on first blush, it does appear, that the prime responsibility of furnishing the return of income of the company is of the managing director of such company. But then, it is not correct to read the above provision so as to conclude that it is always or invariably the responsibility of the managing director alone and of no other.

The Hon’ble High Court opined that in a situation where the managing director may not be in a position to verify or submit the return of income, this on account of numerous reasons which may be presented as “unavoidable” and in case of such difficulties for the managing director to abide by the requirements of law on behalf of the company, the responsibility of other directors – the provision noticeably uses the expression “any director thereof” – cannot be ignored.

The Hon’ble High Court observed that in answer to the show cause notice, there was no explanation offered for failure on the part of the managing director to furnish income-tax return.

The Hon’ble High Court opined that whether or not there was any difficulty on the part of managing director would be a matter of his defence at the trial. It cannot be assumed at this stage that such would be his defence, but if such defence were to be presented, it would be the responsibility of the directors to explain the default. Be that as it may, there is no escape from the conclusion that the directors are also equally responsible for furnishing of return on behalf of the company as is the case of the managing director.